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While the hearings were no picnic for the automakers, and while a large number of voices are calling for no aid, the bet on the Street continues to be that some form of aid will be forthcoming. Unfortunately, the same group that believes aid is coming also believes that the equity in GM (certainly the common equity) has little if any value.
The bet is that some small amount of money will be given to the auto makers now, enough to serve as some type of bridge loan into early 2009. At that point the Democrats will have the political leverage to develop a broader rescue package in the first weeks of February.
But something needs to be done soon. Here's the Doomsday Scenario:
1) No action in the next week;
2) Senate goes away in December;
3) Parts suppliers, steel companies, ad agencies and other suppliers demand payment on delivery for services from the auto makers. This will dramatically accelerate the cash burn and...poof! They're gone. Chapter 11, mid-December.
The auto execs will appear in front of the House at 10 am ET. GM [GM
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] down 6 percent pre-open.
Elsewhere:
1) Could Fannie Mae[FNM
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] be de-listed from the NYSE? The NYSE took the first step, notifying Fannie that they have been trading below $1.00 for the last 30 consecutive trading days. They have until November 26th to tell the NYSE how they plan to get the stock price above $1.00 (currently $0.47).
2) European financials are again weak pre-open, with ING [ING
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] , Barclays [BCS
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] , Deutsche Bank [DB
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] and others down 5 to 9 percent.
3) Same with commodity stocks: BHP Billiton [BHP
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] , Petrobras [PBR
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] , Rio Tinto [RTP
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] and others down 3 to 5 percent pre-open.
4) A little bit of good news on Housing Starts and Permits: starts about in line with expectations, but permits was well below expectations (708,000 vs. consensus of 772,000). While this sounds bad, we want permits to drop to soak up the excess supply.
Not good news elsewhere on housing: mortgage applications fell 6.2 percent; unfortunately it was all led by a 12.6 percent drop in applications to buy homes (not refis), even though mortgage rates dropped. Applications are near an 8-year low.
Unfortunately, deflation is accelerating, as both CPI and core CPI came in well below expectations.
5) LDK Solar [LDK
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] and Trina Solar [TSL
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] both reported strong profits on demand for solar power; the question is whether the slower global economy and lower oil prices slow the growth they should be seeing.
6) Discounters continue to look good: BJ Wholesale [BJ
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] beat, and gave guidance for next year of $2.27 to $2.39, above the midpoint of $2.30 expected.
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- Stocks Lurking Near New Highs Again
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- The Bernanke Dollar Bounce & Gross Says Forget About Rate Hike
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